Personal Bankruptcy in Canada

Deciding to declare bankruptcy is not an easy decision to make, but it can be a viable solution to clear debt depending on the financial circumstances. When you declare bankruptcy, all of your eligible debts become legally binding contracts that must be repaid. Bankruptcy can help you get a fresh start by relieving you of your debt burden, but it's essential to understand how bankruptcies work in Ontario before making any decisions.

Ideally, nobody ever plans on filing for bankruptcy, but sometimes it is the only option left. If you consider claiming bankruptcies in Canada, knowing the process and what to expect is important. 

What does declaring Bankruptcy means?

Bankruptcy is a legal process that gives opportunities to individuals to reorganize or restructure their finances and eliminate their debt. This process is overseen by a bankruptcy court and generally takes between six months and three years to complete. Bankruptcy can be filed for several reasons, such as personal financial difficulties, business restructuring, or eliminating creditors' claims. 

Individuals who file for bankruptcy protection typically do so because they are unable to repay their debts. When individual files for bankruptcy, all of their assets are taken into account to pay off creditors; if the value of the assets does not cover the amount of debt owed, the court may liquidate some of the debtor's assets to pay off creditors. Bankruptcy is not a decision that should be taken lightly. It can have severe consequences for your credit rating and future borrowing ability. It is essential to understand the ramifications of bankruptcy before making decisions.

What Happens When You File Bankruptcy in Canada?

When an individual files for bankruptcy in Canada, it is a legal declaration of insolvency. This means that the individual can no longer repay their debts as they become due. The Bankruptcy and Insolvency Act (BIA) governs the process by which individuals can file for bankruptcy and how it must be administered.

The process of bankruptcy should always be managed by a Licensed Insolvency Trustee. The bankrupt's assets are sold, and the proceeds are used to repay creditors. The debtor is discharged from bankruptcy once all debts are repaid. 

  •   What happens to your assets?

 In Canada, when you declare bankruptcy, your assets are divided into two categories: exempt and non-exempt.

Exempt assets are protected from being seized by creditors and include items such as your home, car, furniture, clothing, and tools of the trade. Non-exempt assets are not protected and can possibly be seized by creditors to be used to pay off your debts.

The most common types of exempt assets comprise:

Ø Personal effects (e.g., clothing, furniture, appliances)

Ø Household goods (e.g., dishes, pots, and pans)

Ø Tools of the trade (e.g., tools used for your job)

Ø Vehicles up to a particular value

Ø RRSPs and other registered retirement savings plans

The most common types of non-exempt assets comprise:

Ø Cash

Ø Investments (e.g., stocks, bonds, GICs)

Ø Property (e.g., real estate, cars)

Ø Business assets

Ø Unpaid wages

During bankruptcy proceedings, an appointed Licensed trustee will review your financial condition and determine which assets can be used to repay your creditors. Our licensed Insolvency trustees at Risman Zysman make sure that you retain possession of most of your assets and only consider selling them if necessary. You can keep a certain amount of assets (called exemptions) to live on. The exact amount depends on the province or territory in which you reside.

  • What Happens to your Debts?

Majority of your unsecured debts are forgiven when you claim bankruptcies in Canada. This includes credit card debts, lines of credit, and personal loans. Secured debts (e.g., car loans, mortgages) are not forgiven and must be repaid. Student loans are a case; they are considered unsecured debts if you've been out of school for seven years.

Creditors cannot take legal action against you to collect your debts after filing for bankruptcy. This includes wage garnishment, legal action, and seizure of assets. Although, there are a few exceptions to this rule. For instance, creditors can continue to pursue you for repayment of child support and alimony payments. Additionally, if you have obtained money through fraud or misrepresentation, the court may order that the debt be repaid even after being discharged from bankruptcy.

Although declaring bankruptcy will relieve you of most of your debt obligations, it is important to remember that there are better debt relief options available as well that should be considered. Bankruptcy can potentially impact your credit score and your ability to obtain credit in the future.

  • What Happens To Your Income?

When you declare bankruptcy in Canada, your income will be affected in a few different ways. First of all, any money that you owe to your creditors will be frozen. This means that you will not be able to access it or use it to pay your bills. Secondly, your tax returns for the previous year will be applied to your bankruptcy estate. This can impact your current income and make it more challenging to make ends meet. Finally, your credit score will be significantly affected by bankruptcy. Thus, making it difficult to get loans or lines of credit in the future.

While declaring bankruptcy can have some short-term effects on your income, it is often the best solution for individuals struggling with debt. It provides you with a fresh start and allows you to rebuild your credit score over time.

  •   How Is Credit Score Impacted After Bankruptcy

Declaring bankruptcy will have a significant impact on your credit score in Canada. That's because bankruptcy is considered a significant financial setback, and it will stay on your credit report for up to seven years. Bankruptcy can make it challenging to obtain new credit during that time. In addition, missed repayments or collector calls related to your bankruptcy can also impact your score.

 The bright side is that your credit file is clean again once the bankruptcy is discharged, and you can initiate rebuilding your credit rating. There are some options available to help you do this, such as secured credit cards and lines of credit. At Risman Zysman, you can work with our credit counseling service to develop a plan to improve your credit rating.

What Does "Discharged" Mean?

"Discharged" in Canadian bankruptcy law means that you are no longer bankrupt. You will have completed all of your mandatory duties, and a Licensed Insolvency Trustee has been appointed to your file. Once you are exempted, your honesty sheet and any related reports are filed with the court and made part of the public record. Your debtors will also be notified that you are no longer bankrupt.

If you have been through the bankruptcy process in Canada, you likely want to put it behind you as soon as possible so that you can start rebuilding your life.

Should I File for Bankruptcy?

The decision of when to file for bankruptcy will depend on various factors specific to each case. However, some signs that it may be time to consider bankruptcy filing include struggling to make ends meet despite making significant financial sacrifices if creditors are harassing you or facing legal action due to your inability to repay debts.

If you are considering a bankruptcy filing, it is crucial to speak with an experienced licensed insolvency trustee who can help guide you through the process and advise you on the best course of action for your specific situation. Our Licensed Insolvency Trustees at Risman Zysman can help you understand your options and develop a plan to get out of debt. We can also assist you in improving your financial situation and avoiding future debt problems.

What Is A Insolvency Trustee, And What Is The Trustee's Role?

A trustee is an individual or institution responsible for holding and managing assets on behalf of another person or entity. In bankruptcy, the court-appointed a trustee to oversee the process and administer the bankrupt estate. The trustee's role is to collect and realize assets, make distributions to creditors, and perform other duties as prescribed by the bankruptcy code and assigned by the court. 

When a debtor files for bankruptcy, they must list all of their creditors in their bankruptcy schedules. The Insolvency trustee's job is to review the schedules and records, meet with the debtor (the person who filed for bankruptcy), manage the bankrupt estate's assets, and distribute funds to creditors following the bankruptcy code. The trustee is also responsible for ensuring that the debtor complies with the bankruptcy order terms.

Evaluate All Debt Relief Options

Knowing where to turn for help when struggling with debt can be challenging. Here's an overview of the most common debt relief options available in Canada to decide which one is right for you.

Ø Bankruptcy is a legal process that allows you to declare insolvency and have your debts forgiven. Bankruptcy is a good option if you have no assets and no income or if your assets are worth less than your debts. It is the last resort for people who can't afford to pay their debts, and it comes with significant consequences, including a negative impact on your credit score.

Ø Debt consolidation is a process that merges all of your debts into one loan, which you then use to pay off your creditors. Debt consolidation typically has lower interest rates and longer terms than credit cards, so it can be a helpful way to manage your debt. It can be a good option if you have high-interest rates on your debts or struggling to keep up with multiple payments each month.

Ø Debt settlement is a process where you negotiate with your creditors to pay off a portion of your debt. It is typically used as a last resort when you can't afford to pay your debts. Debt settlement can be helpful if you have a significant amount of debt and struggle to make payments. However, it can also damage your credit score, and it's important to be aware of the risks involved.

Ø A consumer proposal is a formal way to deal with your debts when you can't afford to pay them. An agreement between you and your creditors allows you to pay off a particular portion of your debt over a while. Consumer proposals have lower interest rates and shorter terms than bankruptcy, so they can be a helpful way to manage your debt.

Our team of licensed insolvency trustees at Risman Zysman Inc. can help you evaluate all of your debt-relief options, including consumer proposals and personal bankruptcy. We will work with you to determine the best choice for your unique financial situation. We can also negotiate with your creditors on your behalf and represent you in court if necessary.

How Can We Help

It can be hard to know where to turn when struggling with debt. Many options are available, but not all of them are right for everyone. At Risman Zysman Inc., we can help you make an informed decision about your financial status. We can help deal with all types of debts, including loans and line of credit debts, payday loans, credit card debts, tax debts, collection calls, and wage/bank account garnishment.

You can be DEBT FREE with Risman Zysman Inc in your corner! We are a licensed Insolvency Trustee in Canada and are authorized by the government to claim bankruptcy and consumer proposals. We have over 45 years of experience helping people get out of debt, and we're here to help you.

 Contact us today for a free consultation, and let us help you with your debt management.